Judge: Robert B. Broadbelt, Case: 19STCV38419, Date: 2022-12-07 Tentative Ruling

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Case Number: 19STCV38419    Hearing Date: December 7, 2022    Dept: 53

Superior Court of California

County of Los Angeles – Central District

Department 53

MOVING PARTY:                Defendant and Cross-Complainant Neilia LaValle Philanthropies

RESPONDING PARTIES:    Plaintiffs and Cross-Defendants John Lawrence Seitz and Maria Leticia Vallecillo, and Cross-Defendant Frank Viteri

(1)   Motion to Compel Arbitration

MOVING PARTIES:             Plaintiffs and Cross-Defendants John Lawrence Seitz and Maria Leticia Vallecillo, and Cross-Defendant Frank Viteri

RESPONDING PARTY:       Defendant and Cross-Complainant Neilia LaValle Philanthropies

(2)   Demurrer, or, in the alternative, Motion for Judgment on the Pleadings to Cross-Complaint

The court considered the moving and opposition papers filed in connection with the motion to compel arbitration.  No reply papers were filed.

BACKGROUND

Plaintiff John Lawrence Seitz, as trustee of the John Lawrence Seitz Trust dated September 9, 1996 (“Seitz”) filed this action on October 28, 2019.

On January 6, 2020, Seitz, individually and as trustee of the John Lawrence Seitz Trust dated September 9, 1996, and Maria Leticia Vallecillo (collectively, “Plaintiffs”) filed the operative First Amended Complaint against defendants Ronald Appel, as trustee; Val-Chris Investments, Inc.; Equity Key CA; EK Investments, LP; EK Partners, LLC; Kirkwall Investments Partners Unlimited; and Neilia LaValle Philanthropies. 

The First Amended Complaint alleges 10 causes of action for (1) fraud and deceit; (2) wrongful foreclosure; (3) vacate and set aside trustee sale; (4) cancellation of trustee deed upon sale; (5) predatory lending; (6) elder abuse; (7) quiet title; (8) willful violation of bankruptcy stay; (9) accounting; and (10) recession of forbearance and loan agreements.

Neilia LaValle Philanthropies (“Neilia LaValle”) filed its Cross-Complaint against Plaintiffs, Frank Viteri, and Jeff Outler on December 2, 2019, alleging three causes of action for (1) breach of contract, (2) fraud, and (3) indemnity.

Two motions are now pending before the court: (1) Neilia LaValle’s motion to compel arbitration, filed on June 6, 2022, and (2) cross-defendants John Lawrence Seitz, Maria Leticia Vallecillo, and Frank Viteri’s demurrer to Neilia LaValle’s Cross-Complaint, filed on February 3, 2022.

MOTION TO COMPEL ARBITRATION

“A written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable, and irrevocable, save upon such grounds as exist for the revocation of any contract.”  (Code Civ. Proc., § 1281.)  If the court determines that an agreement to arbitrate the controversy exists, that the petitioner has not waived the right to compel arbitration, and that no grounds exist for recission of the agreement, the court “shall” order the parties to arbitrate the controversy.  (Code Civ. Proc., § 1281.2.)  “In California, ‘[g]eneral principles of contract law determine whether the parties have entered a binding agreement to arbitrate.’”  (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236.)

1.     Existence of Written Agreement to Arbitrate

A party seeking to compel arbitration bears the burden of proving a written agreement to arbitrate exists.  (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413.) The burden of production as to this finding shifts in a three-step process.  (Gamboa v. Northeast Community Clinic (2021) 72 Cal.App.5th 158, 165.)  First, the moving party bears the burden of producing prima facie evidence of a written agreement to arbitrate, which can be met by attaching a copy of the arbitration agreement purporting to bear the opponent’s signature.  (Ibid.) If the moving party meets this burden, the opposing party bears, in the second step, the burden of producing evidence to challenge its authenticity.  (Ibid.)  If the opposing party produces evidence sufficient to meet this burden, the third and final step requires the moving party to establish, with admissible evidence, a valid arbitration agreement between the parties.  (Ibid.)

Neilia LaValle has produced a copy of a document entitled “Arbitration Agreement,” entered into by and between plaintiff Seitz and Val-Chris Investments, Inc.  (Appel Decl., Ex. A, Arbitration Agreement.)  Neilia LaValle’s attorney explains that Seitz obtained the subject loan through Val-Chris Investments, Inc., which Neilia LaValle subsequently purchased.  (Appel Decl., ¶¶ 3-4.) 

The Arbitration Agreement provides that Seitz (as Borrower), Val-Chris Investments, Inc. (as Company), and any lender making the loan “agree that any Dispute involving the Loan, including, but not limited to claims arising from the origination, documentation, disclosure, servicing, collection or any other aspect of the Loan transaction or the coverage of enforceability of this Agreement, shall be resolved exclusively by binding arbitration under the terms of this Agreement.”  (Appel Decl., Ex. A, Arbitration Agreement, p. 1.)  The Arbitration Agreement further provides that it shall be binding on the agents, successors, and assigns of the parties and the loan.  (Ibid.)

“Dispute” is defined in the Arbitration Agreement to include any claims of wrongdoing, “such as misrepresentation, negligence, breach of contract, breach of fiduciary duty, unconscionability, fraud in the inducement, rescission, breach of the covenant of good faith and fair dealing and unfair business practices[,]” as well as claimed violations of state or federal laws, including fair lending acts, loan regulation, and unfair business practices.  (Appel Decl., Ex. A, Arbitration Agreement, p. 1.)  Disputes are defined to exclude actions by a lender to foreclose on the note and deed of trust or mortgage for the loan, to collect rents, ejectment or relief from an automatic stay of bankruptcy, and any actions for provisional remedies.  (Ibid.)

The court finds that Neilia LaValle has met its burden of producing prima facie evidence of a written agreement between it, as the assign of the loan, on the one hand, and Seitz, as the signatory borrower, on the other hand, to arbitrate (1) the causes of action asserted by Seitz and against Neilia LaValle in Seitz’s First Amended Complaint, i.e., the first, second, seventh, eighth, and tenth causes of action, because they consist of claims arising from the origination, collection, or other aspects of the loan transaction (including the foreclosure of the real property that secured the loan), or are claims seeking the rescission of the loan (FAC ¶¶ 97, 103, 129, 132, 142), and are therefore “disputes” that are subject to the terms of the Arbitration Agreement, and (2) the causes of action asserted by Neilia LaValle and against Seitz in Neilia LaValle’s Cross-Complaint, i.e., the first and second causes of action, because they assert claims arising from Seitz’s alleged breach of the loan agreement (Cross-Compl., ¶ 23) and Seitz’s alleged scheme to defraud Neilia LaValle “from its secured lien” (Cross-Compl., ¶ 14), and are therefore “disputes” that are subject to the terms of the Arbitration Agreement. 

The court finds that Neilia LaValle has not met its burden of proving that any parties other than it and Seitz may be compelled to arbitration in this action.

“‘Generally speaking, one must be a party to an arbitration agreement to be bound by it or invoke it.’  [Citations.]  ‘There are exceptions to the general rule that a nonsignatory to an agreement cannot be compelled to arbitrate and cannot invoke an agreement to arbitrate, without being a party to the arbitration agreement.’”  (JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1236-1237.)  For example, a nonsignatory may be bound to an arbitration agreement based on the doctrine of estoppel, or as a third-party beneficiary.  (Jensen v. U-Haul Co. of California (2017) 18 Cal.App.5th 295, 300-301.) 

First, the court finds that Neilia LaValle has not met its burden of producing prima facie evidence of a written agreement to arbitrate the controversy between nonsignatory defendant Robert Appel, one the one hand, and Plaintiffs or any cross-defendant, on the other hand.

The Arbitration Agreement was signed only by Val-Chris Investments, Inc., and Seitz.  (Appel Decl., Ex. A, Arbitration Agreement, p. 1.)  Although Neilia LaValle has presented evidence establishing that it may enforce the Arbitration Agreement as an assign to Val-Chris Investments, Inc., Neilia LaValle has not presented any evidence or argument establishing that nonsignatory defendant Ronald Appel can be compelled, or can compel others, to arbitrate the claims asserted against him in the First Amended Complaint.  (Appel Decl., ¶ 4 [Neilia LaValle purchased the subject loan].)  Although the court notes that Neilia LaValle argues that Plaintiffs cannot avoid arbitration by naming Ronald Appel as a defendant, Neilia LaValle has not presented any argument establishing that Ronald Appel may proceed in arbitration.

Second, the court finds that Neilia LaValle has not met its burden of producing prima facie evidence of a written agreement to arbitrate the controversy between it, as the assign of the loan, on the one hand, and (1) nonsignatory plaintiff and cross-defendant Maria Leticia Vallecillo, and (2) nonsignatory cross-defendant Frank Viteri, on the other hand.

As set forth above, a nonsignatory party may be compelled to arbitrate claims based on the application of certain legal doctrines and principles.  (JSM Tuscany, LLC, supra, 193 Cal.App.4th at pp. 1236-1237.)  Neilia LaValle has not presented any evidence or argument establishing that any of the exceptions to compel a nonsignatory party to proceed through arbitration apply to the facts presented here.

The court therefore denies Neilia LaValle’s motion to compel defendant Ronald Appel, plaintiff and cross-defendant Maria Leticia Vallecillo, and cross-defendant Frank Viteri to arbitration.  (Matthau v. Superior Court (2007) 151 Cal.App.4th 593, 598 [“a party can be compelled to submit a dispute to arbitration only if the party has agreed in writing to do so”]; Code Civ. Proc., § 1281.2.)

The court finds that Seitz has not met his burden of producing evidence to challenge the authenticity of the Arbitration Agreement, or otherwise dispute that he entered into the Arbitration Agreement.

The court therefore finds that (1) there exists a valid agreement to arbitrate as between Neilia LaValle and Seitz, and (2) the claims alleged in this action, as set forth above, are encompassed by the Arbitration Agreement.

2.     Waiver

“California courts have found a waiver of the right to demand arbitration in a variety of contexts, ranging from situations in which the party seeking to compel arbitration has previously taken steps inconsistent with an intent to invoke arbitration [citation] to instances in which the petitioning party has unreasonably delayed in undertaking the procedure.”  (St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1196 [internal quotations omitted].) “In determining waiver, a court can consider (1) whether the party’s actions are inconsistent with the right to arbitrate; (2) whether the litigation machinery has been substantially invoked and the parties were well into preparation of a lawsuit before the party notified the opposing party of an intent to arbitrate; (3) whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay; (4) whether a defendant seeking arbitration filed a counterclaim without asking for a stay of the proceedings; (5) whether important intervening steps [e.g., taking advantage of judicial discovery procedures not available in arbitration] had taken place; and (6) whether the delay affected, misled, or prejudiced the opposing party.”  (Ibid. [internal quotations omitted].)

The court finds that Seitz has not met his burden of establishing that Neilia LaValle waived its right to compel arbitration pursuant to the Arbitration Agreement.

In support of its motion, Neilia LaValle submitted evidence to the court establishing that its attorney “received a full and complete copy of the underlying loan file” in June of 2022, including a copy of the Arbitration Agreement.  (Appel Decl., ¶¶ 16-17.)  Neilia LaValle filed its motion on June 6, 2022, within a reasonable time after receiving the Arbitration Agreement. Moreover, although the court notes that this action was initially filed on October 28, 2019, Neilia LaValle points out that discovery in this action was stayed upon Seitz’s January 31, 2020 filing of the special motion to strike, until January 19, 2022, when the court issued its order ruling on Seitz’s motion.  (Code Civ. Proc., § 425.16, subd. (g) [all discovery stayed upon the filing of a notice of motion to strike made pursuant to section 425.16].)

Accordingly, although there appears, at the outset, to be a delay in seeking to compel arbitration, the facts establish that Neilia LaValle did not act inconsistent with its right to arbitrate, or unreasonably delayed filing this motion, in light of (1) the stay on discovery following the filing of Seitz’s special motion to strike, and (2) the evidence establishing that Neilia LaValle obtained a copy of the Arbitration Agreement in June of 2022.

The court therefore finds that the circumstances presented do not establish that Neilia LaValle waived its right to compel Seitz to arbitration.

3.     Conclusion

The court finds that (1) Neilia LaValle met its burden to establish the existence of a written agreement to arbitrate the claims (i) alleged by Seitz in his First Amended Complaint and (ii) alleged by Neilia LaValle in its Cross-Complaint, and (2) Seitz has not met his burden to establish that the Arbitration Agreement is unenforceable, or that Neilia LaValle waived its right to arbitration.  The court therefore grants in part defendant and cross-complainant Neilia LaValle Philanthropies’ motion to compel arbitration.

The court notes that Neilia LaValle further requests the court order that the parties shall proceed to arbitration and each pay “one-half of the costs and fees.”  (Mot., p. 5:6.)  As noted by Seitz in opposition, the Arbitration Agreement does not provide for costs to be split in this manner.  Instead, the Arbitration Agreement specifies that “Company [i.e., Val-Chris Investments, Inc.] shall pay all arbitrator fees and hearing fees to the extent they exceed what Borrower [i.e., Seitz] would have had to pay if the matter were tried in court.  Each party shall bear their own attorneys fees, unless a specific claims statute applies.”  (Appel Decl., Ex. A, Arbitration Agreement, p. 1.)

The court therefore denies Neilia LaValle’s request that the court order the parties to each pay one-half of the costs and fees.

The court orders that all proceedings in this action are stayed pending the completion of the arbitration between defendant and cross-complainant Neilia LaValle Philanthropies and plaintiff and cross-defendant John Lawrence Seitz.

DEMURRER

The court has granted, in part, Neilia LaValle’s motion to compel arbitration and stay proceedings.  The court therefore orders that the pending demurrer is taken off calendar, subject to being rescheduled after the stay of this action is lifted.

ORDER

The court grants in part defendant and cross-complainant Neilia LaValle Philanthropies’ motion to compel arbitration.

The court orders (1) defendant and cross-complainant Neilia LaValle Philanthropies and (2) plaintiff and cross-defendant John Lawrence Seitz to arbitrate the claims alleged in John Lawrence Seitz’s First Amended Complaint and Neilia LaValle Philanthropies’ Cross-Complaint, and (2) this action is stayed pending the completion of arbitration.

The court denies all other relief requested by Neilia LaValle Philanthropies in its motion to compel arbitration.

The court takes off calendar the hearing on the demurrer filed by plaintiffs and cross-defendants John Lawrence Seitz and Maria Leticia Vallecillo, and cross-defendant Frank Viteri, subject to being rescheduled after the stay of this action is lifted, and the court vacates all other future hearing dates scheduled in this action.

The court sets an Order to Show Cause re completion of arbitration for hearing on ______________________, 2023, at 11:00 a.m., in Department 53.

The court orders defendant Neilia LaValle Philanthropies to give notice of this order.

DATED:  December 7, 2022

_____________________________

Robert B. Broadbelt III

Judge of the Superior Court